Europe’s wind industry stumbles when it needs it most

It should be a great time to be in the wind energy business, especially in Europe. Governments here have long encouraged offshore wind projects, and those efforts have accelerated since Russia began cutting natural gas shipments in its war with Ukraine.

“We need clean energy, we need cheaper and we need local electricity,” European Union President Ursula von der Leyen said in August.

But European wind turbine makers, the crown jewels of the region’s green energy industry and a source of manufacturing expertise, are reporting losses and laying off workers. Their problems stem in part from ongoing supply chain problems and competition from Chinese manufacturers, and those problems could ultimately hamper Europe’s, and indeed the world’s, ambitions to rapidly develop emission-free energy sources.

This month, Siemens Gamesa Renewable Energy, a Madrid-based company that is the leading manufacturer of offshore wind turbines, reported an annual loss of 940 million euros ($965 million). The company has announced a cost-cutting program that should result in the loss of 2,900 jobs, or nearly 11% of its workforce.

Vestas Wind Systems, the world’s largest turbine manufacturer, recently announced a loss of 147 million euros (about $151 million) for the third quarter.

General Electric, a major wind turbine maker in the United States and Europe, has also struggled in its clean energy business. The company said last month that its renewable energy unit would likely see $2 billion in losses this year.

Several issues are plaguing the industry, including rising material and shipping costs, as well as logistical issues, some of which are a legacy of the pandemic. As a result, previously agreed prices for turbines, which cost millions of dollars each and can reach hundreds of billions for large offshore wind farms, can result in huge losses for manufacturers when delivering them.

“Every time we sell a turbine, we lose 8%,” Vestas chief executive Henrik Andersen said in an interview.

At the same time, a race to create bigger and more powerful turbines means manufacturers are spending hundreds of millions of dollars on new designs but not selling enough machines to recoup the costs.

And alarm bells are starting to sound over growing competition from China, where domestic turbine makers who have spent years supplying the Chinese market are beginning to sell their machines overseas. Some Western turbine makers fear a repeat of the bitter experience of solar panels, a technology first developed in the West but now largely dominated by China and other Asian manufacturers.

“They’re in trouble,” Endri Lico, senior wind analyst at consultancy Wood Mackenzie, said of Western turbine makers. “We are talking about a massive loss for the industry.”

The poor financial performance raises questions about the future of the wind industry in the West and the possibility of realizing the very ambitious plans of governments and energy companies to develop large wind farms in Europe and the United States.

Jochen Eickholt, managing director of Siemens Gamesa, said in an interview that the industry needed to make money to develop, build and install turbines, including off the east coast of the United States, which would help countries to meet climate targets for reducing carbon emissions. .

“Our wind turbine manufacturers must be reasonably profitable,” he said. “But at the moment we are not.”

Stung by recent losses, Siemens Energy, the majority shareholder of Siemens Gamesa, is offering to buy about a third of the turbine maker it does not already own as part of an effort to cut costs and tighten checks.

European officials have also criticized parts of the Biden administration’s Cut Inflation Act that encourages domestic investment, fearing the law’s substantial incentives for clean energy will drive manufacturers away from the mainland. However, European renewable energy executives whose companies plan to expand into the United States have seen a lot to like about the Biden agenda.

Mr Eickholt said in a recent call with reporters that Europe would be wise to adopt similar measures. “I think it’s absolutely vital also in Europe that we retain the associated know-how as well as the manufacturing and workforce base,” he said.

While Chinese manufacturers have made only modest inroads outside their home country, analysts say they have used the large sales volumes in China to hone their manufacturing skills and train a workforce. important work capable of delivering turbines at prices well below those demanded by their Western rivals.

“Europe now faces the very real possibility that the EU’s energy transition will be made by China,” Siemens Gamesa warned in a recent article asking for support from European governments.

Chinese companies already produce up to 70% of the components that make up the turbines used in the West, according to Lico. “China is the epicenter of the global wind power supply chain,” he said, referring to component makers.

Vestas’ Andersen blames much of the industry’s woes on competitors selling machines at low prices to win orders. “I think the industry here needs to realize its own responsibility,” he said, adding that some equipment manufacturers were “selling turbines at deficit prices.”

The difficulties come as European governments demand more wind farms. The European Union recently increased already ambitious wind generation targets by the end of this decade to almost triple the amount available at the end of last year.

As companies have built massive wind farms off Europe’s coasts and governments have leased large amounts of underwater land, including in Scotland this year, executives say political leaders are not doing enough to speed up approvals. These projects can take up to ten years to start producing clean energy. Besides being a drag on industry profitability, the delays delay environmental benefits and do little for countries seeking alternative energy sources to Russian gas.

Executives also say windfall taxes on the profits of power producers, including wind farm operators, recently announced in Britain and proposed by the European Union are creating additional uncertainty for their customers.

“Excuse the language,” Mr. Andersen said. “It may be a bit absurd to sit down and adjust the targets for 2030 and 2040, because it does not solve the current energy crisis in Europe.”

Approaching this goal would require a significant acceleration of current install rates, analysts say. For an industry that may be on the back foot, picking up the pace could be difficult.

Mr Lico said Europe faced a dilemma: whether to support domestic turbine production, possibly prolong dependence on fossil fuels, or instead turn to alternative sources of equipment. It’s “a question of priorities”, he said.

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